US INFLATION INCREASED MODERATELY IN JULY

News: Inflation in US increased moderately in July and moved to 3.2% in July 2023 compared to 3.0% in June 2023. Core-CPI which excludes energy and food rose 4.7% in July from a year earlier, ebbing from 4.8% in June, smallest in nearly 2 years. Higher rents were mostly offset by declining costs of goods such as motor vehicles and furniture. Core inflation remained elevated because  of inflationary pressures from Shelter costs. CPI on MoM basis increased by 0.2% in July 2023, matching gain in June. Core CPI increased 0.2% in the month, first time in 7 months that it did not post monthly gains of at least 0.4%. Index for shelter was the largest contributor on monthly basis, with the index for motor vehicle insurance also contributing. Shelter prices rose 7.7% from year earlier accounting for over two-third of  the total increase in all items less food and energy. Services less energy services index rose by 6.1% in July 2023 compared to 5.5% same month year ago. The energy index declined by 12.5% for the 12 months ending July, and the food index increased 4.9% over the last year. After the data huge volatility was witnessed across the asset class. Initially dollar declined but recovered all its losses and ended on positive note at 102.62 on hawkish comments from Fed official. Stocks markets finished marginally higher. Bond yields rallied with benchmark 10-year note yields surged to 4.109% and Interest rate sensitive 2-year yields moved up to 4.84%.

Views: Dollar is likely to continue with its weakness in the coming days as cooling headline inflation strengthened the bets that Federal Reserve is done with rate hikes and will hit a pause button from next meeting. Recent batch of economic data signals that economy is feeling the heat of the aggressive rate hikes, giving more incentive to central bank to put a brake on monetary tightening. Recent reports of CPI signals that price pressures are not worsening and might soon be slowing further. US Dollar Index is facing strong hurdle near 103.50 levels and immediate resistance near 103.00 level, as long as it sustains below this levels it may slip further till 99.50 levels.

Impact: Negative